The low-carbohydrate craze has been singled out as the culprit for everything from the poor performance of Krispy Kreme to the bankruptcy of Interstate Bakeries, the makers of Twinkies and Wonder Bread over the past few months.
But the Golden Arches proved that the allure of the Big Mac was stronger than any diet fad, as McDonald's reported Tuesday one of its strongest performances yet.
For the third quarter ended Sept. 30, McDonald's reported a stellar performance above analysts' expectations, with profits soaring 42 percent. The biggest hamburger chain in the world said that strong sales at home were the key reason for its success.
In the latest quarter, McDonald's reported revenues increasing 9 percent from the same quarter a year ago to $4.9 billion, while comparable sales rose 5.8 percent. Meanwhile, operating income rose 14 percent to $1.1 billion, while diluted earnings per share increased by 42 percent to 61 cents from 43 percent a year ago.
"McDonald's U.S. results were strong, especially in the face of increasingly difficult year-over-year comparisons," said company president Charlie Bell.
"Our focus on quality food, menu variety, compelling marketing, and outstanding customer service continue to drive global performance. For the third consecutive quarter, we increased customer visits, improved margins and delivered double-digit growth in earnings," he added.
Certainly, the company has succeeded in diversifying its menu from simply offering burgers, fries, and other high-fat foods, by providing healthier alternatives such as salads and vegetarian sandwiches in some areas.
Analysts pointed out too that by diversifying its offerings, McDonald's has seen the average amount spent per customer go up as well, thereby boosting sales in dollar terms. For instance, a burger meal may have been about $4, but a single salad goes for nearly $5, without a drink or any other product.
That strategy of improving the existing menu in addition to bolstering existing stores instead of simply increasing the number of stores in the United States came two years ago, after the Golden Arches faced the first quarterly loss in its history. That management philosophy is being carried on by Bell, who is not only the first Australian, but the first non-U.S. citizen to head the company.
Yet, McDonald's may suffer from a management change through no fault of its own. Bell took over from Jim Cantalupo who died after a heart attack in April. But one month after taking office, the 43-year-old Bell found that he had colon cancer, for which he is currently being treated.
Yet Bell remains in control of the global franchise for now, and he reiterated his confidence in the company's performance going forward.
"We have fortified our foundation and positioned McDonald's for future growth. As we move forward, we will intensify our efforts...to be better, not just bigger," Bell said.
That may well be, but Bell was unable to take part in the phone conference with business reporters Tuesday to go over the latest financial results because he was being treated for cancer.
Still, even if there is no change in leadership of the company, McDonald's still faces considerable problems moving forward in the cut-throat business of fast food. For one, rivals including Wendy's and Burger King have already introduced their own lines of salads and other healthy fare, making it more difficult for one brand to be more attractive to the health-conscience consumer.
That said, McDonald's does not disclose the breakdown of its sales by product to the public, so it is not easy to gauge just how popular the salads and other non-core products are. But company officials have suggested that sales of the easily perishable goods reflects more on what image McDonald's wants to portray for itself, namely more than just a greasy burger joint.
Then there is the possibility of a slump in demand overseas. The company expressed concerns about growth outside of the United States moving forward, particularly in Europe with sluggish economic growth in Germany.
Another hurdle for McDonald's which remains out of its control is the ongoing investigation into mad cow disease. To be sure, fast food sales in the United States have not been greatly affected by the outbreak of the disease in the country a year ago when several cows in Washington state were found to be infected. While the panic about mad cow has since abated, there is concern nevertheless that should another wave of infected animals be found, it could pummel the company's performance.
